Mortgages And Your Personal Finance
Everywhere you look there are bulldozers and shovels moving and construction workers pouring concrete for housing and business foundations. In the Arizona desert, just 30 minutes away from Phoenix, a new town called Mark East arises – a settlement for 15,000 residents, including shopping, hotels, schools, and parks.
That's an amazing transformation
Until recently, everything looked different: People were unemployed and Mark East was practically a planning sketch to be stored away. The nearby city of Phoenix was the center of the issues that brought the U.S. housing market to its knees and triggered the financial disaster of 2008. But in recent months, many areas of the United States have seen housing prices rise.
Homeowners from Florida to Maine now stir the hope that its market could be revived. Homes sold are at the highest level marked in four years, mainly because housing prices are increasing on a year-by- year basis by 12 percent.
Why is this recovery so miraculous? It is thought that the market is being driven by those same people who were mainly responsible for the collapse of the housing market five years ago: Investors and banks on Wall Street.
When real estate was at its peak
When that was true these businesses generously handed out money like the housing market was a popular sport. But is this same approach going to lead to another housing downfall? Experts say that this time history will not repeat itself. On every corner, something new is being built.
The jobs in the construction industry are back, not only in Arizona but across the country. Since last September, the industry has created 150,000 positions. It also creates new jobs by the growing demand for furniture, household appliances, flat screen televisions and other goods around the household.
Home improvement chains
Home Depot and Lowe's last reported whopping quarterly figures, cheered not only their shareholders but also economists: The signs are good for a new boom. Even the coffers of cities and towns, which are financed largely by land and real estate taxes, fill again slowly.
But skeptics are warning people that the recovery efforts were only a spark of what is to come – and it is fuelled by the country’s Federal Reserve. In fact, there are plenty of great arguments that would support the skepticism.
Ben Bernanke, Chairman of the Federal Reserve, has been quiet about getting the real estate market back on its knees. The nation’s benchmark interest rate has virtually been at zero since the start of the financial crisis. With several financial tricks, the Federal Reserve pushed rates for longer-term mortgages even higher.
In 2012, Bernanke started buying securities for large scale mortgages – and in some months the money spent was just south of $40 billion dollars.
The repurchasing program
This was still running through 2015. Until that point hits, the Federal Reserve could pump nearly one trillion dollars back into the housing market. Even though mortgage interest rates have declined to historic lows, loans with a 30 year term could see three percent interest, which would be historic lows.
So far it has been successful. The low interest rates and continued low real estate prices have attracted buyers to the market who would otherwise prefer to wait yet. However, the numbers show that there is a decline in families looking for a new home.
Less than five years after the recession began, shaky mortgage securities have pulled the global economy back into recession, increasing Wall Street’s pull over the world again. Hedge funds and private equity firms are now playing the role of a homeowner and also collecting rent.
They are putting houses into pools and pulling out securities. They then sell the homes to investors as pension funds. Rental income – and the net of current administrative costs - then flow as a return to the purchasers of the securities. The principle is similar to mortgage securities, which once stood as the center of the crisis.
Wall Street has already found a handy shortcut for this new financial instrument – and it’s called "REO to Rental", which stands for "Real Estate Owned to rent." Banks like JPMorgan Chase are forecasting a $1.5-trillion market. There are other areas in the country that look quite different from Phoenix and that is why skeptics are warning the public not to fall into another trap. Streets of certain towns, like River Bend, are lined with oatmeal-colour houses that are compact and close together.
A large part of the town seems uninhabited, most of which are people who have lost all their savings and have seen their homes go through foreclosure. At the height of the boom, the cost of a home in River Bend was $250,000, but now the prices are less than half. People just need to remember that even though housing prices are dropping, they should not fall into another Wall Street trap.
The financial world has known many ups and downs but if history has told us anything is that it always jumps back and sometimes even stronger than before. Being able to make your way safely around the stock market requires knowledge, even the basics will allow you to invest your money in the right assets.
Global Finance School has many interactive online finance courses such as The Fundamentals Of The Stock Market which will is an excellent start for any beginner in the trading and investing world of finance.
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